Hypo Real Estate Holding AG, the commercial-property lender rescued by the government following the financial crisis, was the only one among 14 German banks to fail a European Union-wide stress test.
Hypo Real Estate’s Tier 1 capital ratio, a measure of financial strength, dropped to 4.7 percent in a test scenario that simulated a sovereign-debt crisis and economic recession, below the 6 percent minimum required, the Bundesbank and Germany’s financial regulator, BaFin, said in a joint statement. The bank would only have to raise capital “if the hypothetical stress scenario actually did materialize,” they said.
EU regulators have carried out the region’s first orchestrated stress tests as they seek to reassure investors about the firms’ resilience to potential losses amid a crisis that has pummeled the bonds of countries such as Greece, Spain and Portugal. The tests, coordinated by the Committee of European Banking Supervisors, assessed 91 of Europe’s biggest banks. Seven of the lenders didn’t pass, CEBS said today.
“Had Hypo Real Estate not failed the test, this would have meant the stress tests would have been a real joke,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. “The bank is under reconstruction anyway and will be recapitalized by the German government, so this doesn’t really matter for the market.”
Would Have Passed
Hypo Real Estate would have passed the test if it had received all the capital it requested from Germany’s Soffin bank-rescue fund, the Munich-based lender said in an e-mailed statement following the publication of the results.
“Given full recapitalization, Hypo Real Estate would exceed the 6 percent Tier 1 ratio for all scenarios used in the current stress test,” the company said. The bank said it has applied for a 10 billion-euro ($12.8 billion) recapitalization, of which 7.87 billion euros have been approved.
Deutsche Bank AG, Commerzbank AG and Deutsche Postbank AG, Germany’s biggest publicly traded banks, all passed the test. Deutsche Bank’s Tier 1 capital ratio dropped to 9.7 percent in the most severe scenario, while Commerzbank’s and Postbank’s fell to 9.1 percent and 6.6 percent respectively.
“Over the last two years, the German banks have undertaken considerable efforts to clean up their balance sheet and to obtain capital injections from owners and government bodies,” BaFin and Bundesbank said today. The average Tier 1 capital ratio under the sovereign-shock scenario was 8.2 percent.
Germany’s BdB banking association, which represents more than 220 private lenders such as Deutsche Bank and Commerzbank, said the publication of the stress tests will help calm markets and boost trust.
Germany’s state-owned lenders, or Landesbanken, all passed. Bayerische Landesbank and Landesbank Baden-Wuerttemberg had Tier 1 capital ratios of 8.8 percent and 8.1 percent. Norddeutsche Landesbank, which hasn’t received state aid during the financial crisis, had the second-lowest ratio among the tested German lenders with 6.2 percent in the most severe case.
Landesbank Berlin Holding AG, which also didn’t need any government help during the financial crisis, had the best ratio of all 14 tested German lenders with 11.2 percent.
HSH Nordbank AG’s and WestLB AG’s ratios were 9.7 percent and 7.1 percent. Both needed state aid to stem losses and dump toxic assets during the financial crisis. Stuttgart-based LBBW, the country’s biggest state-owned lender, also received 5 billion euros ($6.4 billion) of capital. BayernLB in Munich needed 10 billion euros in fresh funds.
EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday the union has the means to fix any problems that may be found in the tests. Ailing lenders should first seek funding from their shareholders and the markets before seeking help from national rescue funds, Rehn said.
The 54-member Bloomberg Europe Banks and Financial Services Index has dropped 3.9 percent this year amid the debt crisis.
“This stress test is not transparent and it will rather add to uncertainty in the market because of its various adjustments and the way the banks that were tested have been selected,” said Klaus Fleischer, professor for banking and finance at the University of Applied Sciences in Munich. “Therefore, the test results are not very credible.”
The following table shows the results of all German banks that were tested, as published by BaFin and the Bundesbank.
Tier 1 capital ratio Tier 1 capital ratio year-end 2009 after additional sovereign shock scenario 2011 Landesbank Berlin 13.3% 11.2% HSH Nordbank 10.5% 9.7% Deutsche Bank 12.6% 9.7% WGZ Bank 9.7% 9.1% Commerzbank 10.5% 9.1% BayernLB 10.9% 8.8% DZ Bank 9.9% 8.7% DekaBank 9.8% 8.4% LBBW 9.8% 8.1% Helaba 8.8% 7.3% WestLB 14.4% 7.1% Deutsche Postbank 7.1% 6.6% NordLB 7.5% 6.2% Hypo Real Estate 9.4% 4.7%